Citius, Altius, Dorkius

I always feel ambivalent about the Olympic Games. Though once an exaltation of individual achievement, today’s games are a spectacle of mindless patriotism. Nations march in the opening ceremonies. National flags are plastered on every athlete. National anthems grace every medal ceremony. But individuals compete. Sure, it’s fun to root for the USA, but it’s hard to see how something like Michael Phelps’ streak of record-breaking races is any sort of national accomplishment. It’s a victory for Phelps, for his team and his trainers, but I sure didn’t sacrifice much on behalf of my country to help him win eight gold medals.

Yet, at every Olympics, the boosterism continues, with the total medal count the favored indicator of national greatness. This year, of course, it is a portent of our geopolitical future: today the Chinese win the Olympics, tomorrow they win the world economy!

On the other hand, incredible human achievements still lie beneath the shlocky crust of national pride. Plus, this year’s games brought our increasingly irrelevant and oddly endearing President out in force, which more than makes up for all the spectators wearing goofy Uncle Sam hats.

Most important, although the medal count ought to be an irrelevant indicator, it’s not. The modern Olympics have always been political, and so has the medal count. That makes it a fun statistic to slice and dice. The New York Times did so recently with a neat medal-count cartogram, and the BBC recalculated the rankings based on things like population and GDP.

Interesting — but not quite geeky enough for me. So, with the help of Google Docs, I cooked up a gapminder animated chart comparing medal count numbers to some of the World Bank’s development indicators. Check it out below (you’ll have to click through).

The dataset is available here, and a lighter, embedded chart is available here (no thanks to WordPress!). Medal count data was imported from an Excel spreadsheet prepared by Chandoo, who graciously copy-pasted every medal count since 1896 from the IOC website and posted the data on his blog. Other indicators were imported from a World Bank DDP query. The 2008 medal count came from the official website around 10pm EST last night, so it’s already changed a bit.

Bear a few things in mind when using the chart. First, World Bank data is unavailable before 1960, so development indicators can only be compared to medal counts for recent Olympic games. However, data on medal counts (that includes the total number of medals awarded at the Olympics, the number of medals awarded to each country, and the “medal share,” or percent of all medals won by each country) goes back all the way to 1896, so these data can be compared before 1960.

Second, the Olympics are held every four years, but development indicators are included for every year. The chart extrapolates medal counts in non-Olympics years, so if you care about accuracy, check out the dataset for exact values, or make sure you’ve scrolled the time slider to an Olympic year (for an example of this, check out the U.S. medal count between 1903 and 1905, graphed against the year).

Finally, any errors in the data are my own, and likely the result of furious copy-pasting between various sources. I’ve checked it as best I can, but if you see something crazy, let me know, and I’ll do my best to fix it. Enjoy!

The markets of Dr. Moreau

Now that the bailout bill for beleaguered semipublic mortgage giants Fannie Mae and Freddie Mac has been approved by the House and the President alike, the Senate is all that stands in the way of the federal government’s latest attempt to double down on moral hazard by rescuing firms deemed “too big to fail.”

There is no doubt about the first part of that description. Fannie and Freddie, which own or guarantee about half of all U.S. mortgages, are far too big. Thanks to special privileges and tax exemptions along with an implicit guarantee on their debt from government, the companies swelled from firms intended to encourage home ownership and ensure liquidity into leviathans accountable for $5.2 trillion in American housing debt. The second part is probably accurate as well. A Fannie-Freddie failure is a devastating prospect for the economy — but a well-designed rescue plan could provide an opportunity not only to shore up a shaky housing market but to dismantle two of its biggest sources of systemic risk.

Unfortunately, that’s not what the American public will get. With the exception of more rigorous capital requirements and a possible amendment offered by Sen. Jim DeMint that would prohibit the firms from lobbying legislators, the bill is little more than a blank check from the Treasury attached to an even bigger bailout for homeowners. It may tide the twins over for another day, but it won’t fix the massive problem of private gains and socialized risk, the crowding-out effect of F&F in the market for safe home loans, or the regulatory capture that enabled the firms to keep shoddy books and operate with a tiny amount of capital on hand. If there is a fate worse than nationalization, Congress has found it.

Most free-marketeers, myself included, have a natural reflex to shun government intervention of any kind. But against my instincts, I found myself agreeing with a leader in this week’s Economist, proposing that a proper policy response ought to “secure the gains for taxpayers and treat Fannie and Freddie like one of their own mortgages, by nationalizing them, breaking them up and selling them on.” A failure would be very, very, bad. In the long run, a bailout that solidifies moral hazard and fails to fix incentives will probably be worse. Thus, it seems the most responsible solution would be to take over the firms for a brief while and immediately dismantle them.

Of course, following the dirty deed of nationalization, there would be a natural tendency for government to attempt to hold onto the power to guarantee home loans. Thus, any such scheme would have to have rigid rules requiring a sell-off as soon as possible. But if a nationalization-privatization plan is the quickest, safest way to get rid of F&F without hugely screwing both taxpayers and homeowners, I might be able to get behind it.

This leads to a more interesting question. Hands down, I prefer market institutions to government ones, because they will almost always have fewer unintended consequences and better overall outcomes. I also prefer markets to the weird government-market hybrids that account for much of the “byzantine amalgam of market and state institutions enmeshed in a thicket of regulation” that we call “the economy.” But under what conditions are the somewhat predictable problems of government ownership preferable to the less discernible difficulties of frankenmarkets like Fannie Mae? In many cases, combining the awesome power of capitalism with the awesome stupidity of government seems like a sure path to disaster.

I can think of a few examples where this is the case. Credit rating agencies, which were allowed to become de facto regulators responsible for some of the subprime mess. The bizarro-world of U.S. health insurance, mired in principal-agent problems and distorted price signals that prevent providers from profiting and consumers from bearing costs. Defense, where wasteful contracting practices on the part of big firms like KBR have helped fuel a trillion-dollar war. But there are plenty of examples on the other hand — school vouchers, for one — where the evidence supports success.

There’s certainly no template for a perfect hybrid beyond designing institutions that aggregate as much local knowledge as effectively as possible. But the worst consequence of frankenmarkets is that they are too often conflated with real free enterprise, which simply isn’t true. In the eyes of many, however, the failure of Fannie Mae is no doubt a failure of finance at large, the waste from contracting in Iraq a rebuttal of “privatization,” and expensive healthcare proof that capitalism is broken. Perhaps it’s time to grab a pitchfork, storm the castle, and get rid of the frankenmarkets for good.

Tax facts

The always-excellent 3quarksdaily points to “The Measure of America,” a new study by the American Human Development Project that concludes, among other things, that “the top 1 percent of U.S. households possesses a full third of America’s wealth,” and that “households in the top 10 percent of the income distribution hold more than 71 percent of the country’s wealth, while those in the lowest 60 percent possess just 4 percent.” A frightening indicator of increasing inequality, right?

Wrong. The latest research by the Tax Foundation shows that the top 1 percent of U.S. households pay 39 percent of all income taxes, and households in the top 10 percent of the income distribution pay about 71 percent of the total tax burden — a remarkably symmetric result. Income inequality may indeed be increasing, but it appears that we all pay our part when the taxman cometh.

Opening the Metaverse, grid by grid

Neal Stephenson’s seminal 1992 cyberpunk novel “Snow Crash” coined the concept of the Metaverse, a networked, computer-generated world existing parallel to physical reality. Over the past few years, the ubiquity of the Internet has helped his idea come true.

Online games like EVE and World of Warcraft are rudimentary Metaverses, but they have clearly defined roles and rules for their users, unlike the open ideal of the Metaverse. Last week, Google jumped into the virtual world market with Lively, a service that offers cartoony, 3-D chat rooms embeddable in websites — another incarnation of the Metaverse idea.

But the closest analog to the Metaverse by far is Second Life, a virtual world with content created by its own users and a thriving online economy. In fact, the creator of Second Life was inspired by the Metaverse, and as graphics cards, internet connections, and processing power have grown faster and cheaper, Second Life has come closer and closer to a persistent virtual alternate reality.

The speed with which Second Life has gone from a crude, glorified chat room to a full-fledged Metaverse is remarkable. Consider this: in 2004, a year after launch, most of the world looked something like the image below — crude, angular, and a little grating.

Today, the most detailed corners of Second Life look more like this:

(via Mylena Aquitane)

See here for more stunning virtual locations. What’s more, this lifelike, often breathtaking Metaverse was built by its own users, who created the world piece by piece with an internal scripting language. And it’s not just the graphics that have spontaneously evolved into a detailed world through user interactions. Second life has a complex economy with a GDP estimated in the hundreds of milions of dollars and an emergent culture that’s even spawned a unique breed of online pranksters-cum-terrorists.

One event last week, however, may mark a turning point for the Metaverse. Tuesday, developers at Linden Labs, the creators of Second LIfe, successfully teleported avatars from the Second Life grid into an external world located on an OpenSim server, the open-source equivalent of Second Life’s closed system. That means that Linden Labs, the organization that has long set the rules for the Metaverse economy, controlled its virtual land, and hesitantly attempted to govern it, may soon exist alongside any number of competing, interoperable virtual worlds.

The Lindens, as the developers that serve as the world’s de facto ruling class are known, have been mostly hands-off about intervening to bring order to Second Life, making it something of an anything-goes libertopia replete with gambling, guns, and squirrel sex. However, as the world’s popularity has grown, the Lindens have caved to external pressure from users and real-world regulators and implemented a series of rules, including a ban on gambling, regulations for virtual banks, and a prohibition on simulated adult-child sex (although, curiously, not hot human-on-hippo action).

OpenSim offers an alternative to government by the Lindens, allowing users to change jurisdictions as easily as they can teleport outside the official grid. As OpenSim servers become more common, competition between virtual governments (or the lack thereof) could have all sorts of interesting effects on the Metaverse.

But will virtual worlds and virtual governments ever be able to compete with the real thing? Along with the Metaverse, “Snow Crash” envisioned a future United States of competing, decentralized sub-city-states called “burbclaves,” which could well be the result of OpenSim’s influence on the virtual world. A well-encrypted system of virtual burbclaves could potentially create an online anarcho-capitalist alternative to meatspace transactions (unless, of course, it’s regulated out of existence by real world governments).

An interoperable grid is a crucial part of creating an open, unregulated cypherpunk future — and considering the success of Second Life, it may arrive sooner than we think.

(cross-posted at Airstream Futuropolis, my extra-geeky blog)